Items that may only interest or educate me ….
TFSAs, green is the new black, the yo-yo market moves….
One of the best things about New Year’s is the opportunity for a fresh slate. In 2022, every sector in the S&P declined, except the Energy sector, as the S&P suffered its worst year since the financial crisis of 2008. Let us hope the markets are much greener this year, with the bears of 2022 being stampeded off the field by the bulls by the end of 2023.
A good way to start the year for Canadians is with a Tax-Free Savings Account (TFSA). I believe the American equivalent is a Roth IRA. The great thing about a TFSA is that you can put stocks inside the TFSA and watch them grow, or trade them without triggering any capital gains (taxes). When you need the money inside your TFSA, you can sell your shares, then withdraw the cash tax free (hence the name Tax Free Savings Account😊). TFSAs are great for long-term saving or to help you save for a goal such as a new car, a vacation, a down payment on a home, or anything you want to set money aside for.
I am always surprised when I talk with someone about investing and they treat a TFSA as another bank savings account, earning them 0.05% interest or less, when it can be so much more. If you are considering investing, using your TFSA is a great place to start, but as always, check with a financial planner to help determine how best to get started investing.
This year the TFSA contribution limit is C$ 6,500. You do not want to exceed this limit, or you will have to deal with the taxman (that is never fun). As in past years, any unused portion will be rolled forward. If you have never had a TFSA, check with a financial planner to see how much room you have available.
Speaking of fresh slate, green is the new black. Historically, in the finance and accounting, black has been associated with companies that are turning a profit (more earnings than expenses). Before accounting became computerized and everything was done by hand, black ink was used for profitable companies while red ink was used to signify companies that were losing money. A profitable company was said to be “in the black.” Companies that were losing money were “in the red.”
I do not know when it started but many financial information sites, including online trading sites, use green rather than black to indicate the share price of a company has increased since the previous day’s closing price and red to indicate when the share price had declined. I suspect the timing coincides with the start of online trading when many individuals started trading shares directly via their computers rather than go through a stockbroker. Looking at green and red symbols was easier for investing novices to understand than the traditional monochrome symbols. A quick look and you knew by the colour which direction the share price had moved. Green was up and red was down.
This can be seen on popular investing sites such as Yahoo! Finance, Google Finance, MSN Money, as well online trading sites such as TD Direct Trading and other online trading platforms. To be consistent with these investing sites, future reference to share prices or indexes that end the day higher will be referred to as ‘in the green,’ with the occasional ‘in the black’ for old times sake. When it comes to investing, green is the new black. 😊
Investors’ emotions bounced up and down like a yo-yo this past week, starting with the release of minutes from the US Federal Open Market Committee (Fed) meeting in December. The minutes showed all members agreed the Fed should continue increasing the US’s benchmark interest rate, but to do so gradually to limit damage to the American economy. Investors now anticipate a 0.25% increase to the US interest rate at the Fed’s next meeting at the end of January. While the Fed plans to slowly raise the interest rate, the Fed said the slower pace of interest rate hikes should not be confused with their determination to bring inflation down to their 2% target. The hopes of a 0.25% increase rather than a higher hike outweighed the concerns the higher rates would stick around longer, causing the markets to rise.
Next up was news that the US Department of Labor was expected to show an increase in employment numbers. While this is typically good news, when the Fed is trying to fight inflation, this is not good news for investors. When the market gets what it perceives to be bad news, the markets drop.
The market has wanted to go higher but it needed some good news to set it off. On Friday, it got the spark it was looking for in the Department of Labor’s official payroll report. The data showed that while the number of jobs did increase, the rate and size of wage increases slowed and employment in the services sector shrank. The report of slowing wages and lower employment in the services sector eased investors’ concern the Fed would return to aggressive interest rate hikes to lower inflation, leading to the Friday rally.
Friday was not the perfect storm for Canadian investors as Statistics Canada’s Labour Force Survey for December showed a significant increase in jobs, far exceeding analysts’ expectations. The average Canadian wages continued to rise but not as fast as they did in November. This mixed data has analysts thinking the Bank of Canada will increase Canada’s benchmark interest rate by 0.25%. However, these concerns easily gave way to the good news coming out of the US, allowing the TSX to ride on the coattails of the surging American indexes.
A better start to 2023 than expected. Hopefully a sign of things to come. While we contemplate a bullish upward trend for the year, let us look back at the week ended January 6….
Weekly Market Review
This week will be a short one for investors thanks to the New Year’s holiday, marking the start of 2023.
Tuesday: The markets got the new year off to a quick start before plunging into negative territory. Only the Toronto Stock Exchange Composite Index (TSX) was able to end the day in the green. The three major American indexes – the S&P 500 Index (S&P), the Dow Jones Industrial Average (DJIA), and the Nasdaq Composite Index (Nasdaq) – all ended lower today. The only sector to end higher in 2022 in both Canada and the USA was the respective Energy sectors. In the first day of trading in 2023, both Energy sectors ended lower on concerns about lower demand from China due to ongoing Covid-19 issues.
In Canada, the Canadian Technology and Basic Materials (miners and fertilizer companies) sector, gold in particular, helped drive the TSX higher. Holding back the TSX was the Energy sector, the only Canadian sector to end the day lower.
In the USA, fears about the US Federal Open Market Committee’s (Fed) interest rate plan going forward weighed on investors. It did not help that Tesla (NASD:TSLA) came up short on analysts’ estimate for fourth quarter deliveries. As well, a report out of Asia suggested weaker demand for Apple’s (NASD: AAPL) latest iPhones. On the first day of trading in 2023, it was not a good day as only three of the S&P sectors were able to end in positive territory – Telecommunications Services, Financials, and Industrials. The Energy sector dropped 3.6%, more than the total of all the other sectors that declined.
Wednesday: The stock markets rebounded nicely today, although it was a rollercoaster ride for all four major North American indexes before they each ended the day in the green. The main driver was minutes from the December Fed meeting that revealed the Fed was prepared to lower the amount of future US interest rate increases to 0.25%, although they did not mention how high the interest may go.
In Canada, the price of gold continued to climb, lifting the TSX higher, while the price of oil fell, limiting the TSX’s advance. In the Canadian sectors, the Technology, Healthcare and Basic Materials sectors all rose by 1.7% or more. Once gain, the Energy sector fell the most.
In the US, analysts and investors examined the minutes from the Fed’s last meeting and appeared to like what they saw. Of the American S&P sectors, Consumer Cyclicals, Basic Materials, and Financials all gained more than 1.95%, helping all three US indexes into positive territory. The only sector to slide back today was the Energy sector.
Thursday: Good news for American workers is bad news for investors. Employment in the US grew by more than analysts expected, leading to fears of continued interest rate hikes to the US benchmark rate. This news caused all four indexes to end the day lower.
In Canada, higher oil prices helped Canadian energy companies limit the fall of the TSX. The two day drop in the price of oil at the start of 2023 was the largest in over 30 years. In the Canadian sectors, Consumer Cyclicals and Energy were the best performing sectors. The biggest declines were by the Technology and Utilities sectors.
In the US, the jobs report was a blow to hopes the Fed would hold off on the next interest rate hike, causing the three American indexes to each drop over 1%. In trading, the S&P’s Energy and Telecommunications Services sectors were the only two sectors to end the day in the green. On the red side, Utilities and Technology dropped the most.
Friday: A good way to end the first week of 2023 with all four indexes ending sharply higher today, enough to push each into positive territory for the week (like scoring a goal in the last minute of play 😊). The good news for investors was a slowdown in both wage growth and the services industry. Together, these gave investors hope that the Fed would ease off on upcoming interest rate hikes.
In Canada, the commodity heavy TSX index rose on the continuing rally in gold prices and the share prices of gold mining companies. Every Canadian sector ended higher, with Energy and Basic Materials leading the way, while Healthcare and Technology brought up the rear.
In the US, investors pushed the Nasdaq, the S&P and the DJIA each over 2% higher on the news the Fed may have slowed down the US economy enough to see inflation drift back to the Fed’s 2% target. In the market, all S&P sectors ended higher, led by the Basic Materials and Industrials sectors, with Healthcare and Energy bringing up the rear.
For the week, the TSX jumped 2.3%, the S&P 500 gained 1.4%, the Dow grew 1.5% and the Nasdaq improved 1.0%.
Weekly Portfolio Review
It was a roller-coaster week in the marks this past week. I did not expect to see all four major North American indexes end in positive territory after Thursdays drop. It seems the market is primed for a rally on almost any good news from the Fed (and the Bank of Canada to a lesser extent), and the slowing of wage increases was enough to trigger a rally. Along with the good news from south of the border, the TSX was buoyed by higher prices for gold and oil. The encouraging jobs and wage reports was enough to propel the three American indexes out of losing positions into ending the first week of 2023 higher. While the Nasdaq gained ground, it advanced the least of the four indexes.
As for the Portfolios, overall, it was a good week. Portfolio 2 was the big winner thanks to a good week from Disney (NASD:DIS) and an overall strong performance from the Canadian companies in the portfolio. Portfolio 1 was barely lower (0.05%), held back by a falling Tesla. Portfolio 3 was barely higher, with overall gains hampered by a sharply fallen Brookfield Select Opportunities Fund (TSX:BSO.UN) which lost almost 50% over the course of the week.
Companies on the Radar
A new company came onto the radar this past week – SmartCentres Real Estate Investment Trust (TSX:SRU.UN). SmartCentres is a Canadian REIT that manages a variety of office towers, hotels, and other retail locations, including Wal-Mart (NYSE:WMT) anchored shopping malls. SmartCentres plans to develop many of their shopping centres into mixed usage centres that includes rental units, condos, office space and storage facilities. As well, the REIT currently provides a 6.9% dividend. This would be a defensive/income addition to any of the three Portfolios, and the development plan provides plenty of opportunity to grow for the REIT.
A short and quiet week, with no companies coming on the radar to join the four companies listed below.
- Crew Energy (TSX:CR): A Canadian oil and gas company with interests in British Columbia.
- Alvopetro Energy (TSXV:ALV): A Canadian natural gas company developing natural gas projects in Brazil.
- International Petroleum (TSX:IPCO): A Canadian company with oil and gas assets in Canada, Malaysia, and France.
- Alphabet (NASD:GOOGL): The leading online search engine and advertising company, dominant mobile operating system.
The Radar Check was last updated January 6, 2022.
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended January 6, 2023: UP 
- The Rogers (TSX:RCI.B) Shaw (TSX:SJR.B) saga continues as Canada’s Federal Court put a stay on their planned merger. Canada’s Competition Bureau requested the stay after Canada’s antitrust tribunal had given the green light to the merger last week.
- Nvidia (NASD:NVDA) has formed a partnership with Foxconn, a leading electronic manufacturer. Foxconn will develop electronic control units (ECUs) for the global automotive market using Nvidia’s Drive Orin chip designed specifically for autonomous and connected cars. The Autonomous Vehicle (AV) market is estimated at US$ 300 billion, yet another growing revenue stream for Nvidia. Being able to branch into several different and growing markets such as AVs and Artificial Intelligence shows good optionality and is one of the reasons I am big on Nvidia.
- Tesla grew deliveries by 1.3 million vehicles in 2022, an increase of 40%. Despite this impressive growth, the share price was hammered by investors because it missed its’ self-imposed goal for 2022. Tesla did experience some supply chain challenges like all other automakers, but the lower delivery number and price cuts at the end of 2022 led investors to worry about weakening demand. In 2023, electric vehicles from GM and Ford should start to scale up and reach consumers, not to mention other EV newcomers, putting further pressure on Tesla. Hopefully, Mr. Musk can refocus his efforts on Tesla and the challenges the company faces in 2023.
- Skyworks Solutions (NASD:SWKS) announced new semiconductors and devices to improve charging times for electric vehicles (EVs). The new devices are built using Skyworks’ technology that minimizes the loss of power during the charging process to make the charging systems more efficient and therefore improve the re-charging process. Anything that would speed up the charging process for EVs to get people on the move again faster strikes me as a winner.
- General Motors (NYSE:GM) is once again king of car sales in America. GM was better able to navigate supply chain issues than other automakers to regain the title from Toyota.
- The 10,000 employees Amazon (NASD:AMZN) planned to lay off has grown to 18,000 globally. The bulk of the layoffs will be in the e-commerce and human resources areas of the company. Amazon got ahead of itself and overbuilt in reaction to demand caused by the pandemic. With life returning normal, inflation and higher interest rates have caused demand from consumers and businesses to fall, along with Amazon’s once soaring earnings.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Cargojet Inc (TSX:CJT)
Telus Corp (TSX:T)
US $
No US$ dividends this past week.
Quarterly Reports
No quarterly reports this past week.
Portfolio 2
Portfolio 2 for the week ended January 6, 2023: UP
- Microsoft (NASD:MSFT) has its first batch of unionized workers. Videogame testers at Microsoft’s Zenimax Studios voted overwhelmingly to join the Communication Workers of America union (CWA).
Microsoft plans to integrate its OpenAI’s artificial intelligence engine ChatGPT with its Bing search engine, possibly as soon as April. Bing is a distance second to Alphabet’s Google when it comes to online searches. Microsoft is hoping by adding AI capabilities to its Bing search engine, it will lure users away from Google. If more users flock to Bing for more relevant results and a more interactive feel, more advertisers and revenues will follow to Bing.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Canadian Natural Resources Ltd (TSX:CNQ)
Brookfield Renewable Partners LP (TSX:BEP.UN)
US $
No US$ dividends this past week.
Quarterly Reports
No quarterly reports this past week.
Portfolio 3
Portfolio 3 for the week ended January 6, 2023: UP
- Shopify (TSX:SHOP) started a new subscription service aimed at large retail clients. Using Shopify’s Commerce Components, retailers will be able to integrate their own modules with Shopify components. Mattel (NASD:MAT) is the first big retailer to sign up for this new service.
- Telus Internationals (TSX:TIXT) and Telus (TSX:T) closed their deal to acquire digital product provider WillowTree. This provides Telus International with a complete set of products they can offer to their customer, spanning the entire customer experience process.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Brookfield Renewable Partners LP (TSX:BEP.UN)
US $
No US$ dividends this past week.
Quarterly Reports
No quarterly reports this past week.